Q1 2016 Oi SA Earnings Call
May 12, 2016 AM EDT
OIBR4.SA - Oi SA
Q1 2016 Oi SA Earnings Call
May 12, 2016 / 01:00PM GMT
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Corporate Participants
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* Bayard De Paoli Gontijo
Oi S.A. - CEO
* Pedro Falcao
Oi S.A. - CTO
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Conference Call Participants
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* Susana Salaru
Itau BBA - Analyst
* Jonathan Graham
Royal Bank - Analyst
* Mauricio Fernandes
Merrill Lynch - Analyst
* Maria Tereza Azevedo
UBS Bank - Analyst
* Bayard De Paoli Gontinjo
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Oi S.A.'s conference call to discuss the first quarter of 2016 results. These events are also being broadcast simultaneously on the Internet via webcast, which can be accessed on the Company's IR website, www.oi.com.br/ir, together with the respective presentation.
We would like to inform that during the conference presentation all participants will only be able to listen to the call. We will then begin the Q&A session, when further instructions will be given. (Operator Instructions)
This conference call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made, and the Company is under no obligation to update them in the light of new information or future developments.
I will now turn the conference over to Mr. Bayard De Paoli Gontijo, CEO. Please, Mr. Bayard, you may proceed.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [2]
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Good morning, everyone. Thanks for joining our conference call today. I have here with me Bernardo Winik, B2C Officer, Pedro Falcao, CTIO; Jose Claudio Goncalves, Network Operations Officer, Carlos Aragao, Regulatory officer and our financial team, with Flavio Guimaraes, CFO and Investors Relations Officer; Marco Schroder, Administrative Officer and Marcelo Ferreira in the IR team. After delivering solid results in 2015, we have continued to concentrate our efforts on the transformation of our business as part of a long-term plan to deliver sustainable growth. During the last 18 months, we have focused on preparing the company to go through a profound transformation on how we deliver telecom services to our customers. I can certainly state that our operations are running well and ready to capture value and growth.
In the middle of this changing environment where data and Internet are becoming the most used telecom services to connect people in the world. Brazilian mobile termination rates are dropping fast and there are moves towards a new regulatory model in Brazil. Of course, we cannot forget that Brazil has been passing through a strong economic recession, the worst of the last decade. Brazilian GDP hit 3.8% contraction in 2015, the lowest level in the last 25 years and market expectations for 2016 aren't any better. Inflation is running close to 10% and interest rates are above 14%, not to mention the depreciation of the Brazilian currency, which is still pressured by the political and economic instability.
We have been resilient during the turmoil. We delivered our 2015 guidance in the middle of a worsening macroeconomic environment, which demonstrated that our strategy of focusing on profitability, productivity and efficiency is right. However, it's reasonable to expect that this continued macro deterioration will affect our business as we can see happening in all sectors in Brazil.
Before I go to present our operational results of the first quarter of 2016, I would like to once again emphasize the strategic priorities of Oi. Moving to slide 3 of our first quarter earnings presentation, we continue to show progress in all our strategic priorities. Our number one priority is the transformation of our business, which is based in four drivers: convergence, digitalization, austerity in costs, and customer experience. Convergence is key to survive and be successful in Brazil, offering all products under one package provides better customer satisfaction, higher loyalty and margins essential to any capital intensive and competitive market.
The launch of Oi Total, which I will discuss later, was a response to this trend. This differentiated offer will be one of Oi's anchors to grow especially in the residential and postpaid segments. Digitalization. To achieve our strategic goals it's fundamental that we promote a digital revolution that affects the business processes and the relationship with our customers by digital interactions with the company using any connected device. As I will show later on, we have already started to do this with some initiatives such as [Mia Oi], the platform Oi Play and the app Oi Mais Empresas. Our goal is to expand the utilization through all interactions with our customers.
Cost control and austerity are crucial to continue our achievements; every day, we question and leverage the use of our budget, identifying opportunities to capture gains. Additionally, we are following up with all sorts of projects, such as the modernization of network and the consolidation of the IT architecture. At the end, we are transforming the way we do business with the final objective of providing a unique, complete and comfortable experience to our customers.
As part of our new position to deliver this transformation, we have recently launched the evolution of our brand aiming to enrich the relationship between people and on a collaborative culture. Our proposal is to show that the brand progresses with consumers which seeks to associate Oi to solutions and not only products. Oi has now a much broader purpose, not only a telecom operator, we exist to enhance connections that drive people.
Our brand follows the changes observed in consumer habits that are more and more adapt to the culture of triple end generation, multi connected, multi device and multi-tasking and reinforces our strategy as part of the transformation plan to pursue business growth through disruptive and innovative offers, such as Oi Livre, Oi Mais, Oi Mais Empresas and Oi Total.
As I mentioned earlier, during the last 18 months, we managed to prepare the Company for its transformation. We improved the quality of our sales and commercial processes, we increased productivity and became more efficient and we modernized and expanded our network capacity. Underpinned by all this business evolution, we are resuming commercial activity anchored by the recent launch of these innovative offers. As I said before, we'll continue to focus on cost efficiency, and despite the high inflation in the last 12 months, we were able to keep costs stable, which means a real reduction of approximately 10% year-over-year.
Meanwhile, we continue to look for initiatives to improve cost efficiency and service quality to our customers as part of our long-term plan to grow sustainably. Regarding the evolution of the Brazilian regulatory environment, our second strategic priority, we continue to move towards two important fronts, the TAC and the concession model. Regarding the TAC, ANATEL is now in its final stages of approval for the first set of projects that we have submitted.
Three Board members of ANATEL already voted in favor of our proposal and we are waiting for the voting of the other two members. As we keep saying, the TAC will be an important step for our industry, as it will allow operators to invest in their business to provide even better services to their clients. Concerning the concession model, the most recent update regards a decree published by the Ministry of Communications with guidelines for ANATEL to make the necessary adjustments to the current rules of the telecom sector.
I would like to reinforce as I do in every call, that the current concession model must be modernized. This model carries a regulatory asymmetry, which harms competition and creates structural disadvantages for incumbents. This change in the concession model is crucial to attract investments and accelerate the development of our sector. Therefore, the development of our country.
Our third priority refers to the improvement of our capital structure. Prior to the fourth quarter 2015 results call, a little more than a month ago, I communicated the engagement of PJT Partners as our financial advisor to assist us in the evaluation of financial and strategic alternatives to optimize our liquidity and debt profile. We have also engaged Barbosa Mussnich Aragao and White & Case as our legal advisors for this process.
Additionally, as we have also communicated on April 25, we entered into a customary non-disclosure agreement with Moelis & Company, who is acting as advisor for a committee of bondholders as an initial step toward productive and agile discussions regarding the terms of a potential debt restructuring.
Now I would like to move on to the next slides to present the operational results for the first quarter of 2016. On slide 5 as you can see, our revenues were affected by the difficult macroeconomic environment while we maintained strict cost control, despite the pressures from inflation and from the increase in our commercial activity. Total net service revenues in Brazil, which excludes handset revenues, totaled BRL6.5 billion in the first quarter of this year, 2.4% lower than in the same quarter of 2015, mainly to the MTR cuts and the deteriorated macroeconomic environment, which especially affects the prepaid segment.
Total net customers revenues in our Brazil operations dropped 0.7% year-over-year reaching BRL6.2 billion in the quarter. Although our topline has decreased in this annual comparison, we were able to reduce the macroeconomic impact through our strategy of improving the quality of our services and the profitability of our customer base, offering convergent plans, being more selective in sales, and simplifying our portfolio with emphasis on higher value and data offers. I will present this in more details later.
We reduced routine operating costs 1.2% year-over-year, a real gain of approximately 10% in the last 12 months considering the high single-digit inflation rate in Brazil in the same period. This reduction demonstrates our continual efforts to control costs. Routine EBITDA from Brazil decreased 12.6% year-over-year reaching margins of 25.8% as a result of the revenue drop. Our CapEx increased 22.3% annually reaching BRL1.2 billion in this quarter. The larger investments, our focus on network improvement as part of our transformation plan, which we believe will support the new offers recently launched and will deliver more and better services to our customers.
It's important to highlight that we continue to maximize the efficiency of investment allocation, as I will show you later. As a result, operational cash flow in Brazil totaled BRL482 million in the first quarter. Now moving to slide 6, as I have said in the previous quarters, 2015 was the year to prepare the company to start growing again. In that sense, between the end of last year and beginning of this year, we've repositioned our portfolio to capture the opportunities from the changes in the dynamics of the Brazilian sector and launched new innovative and disruptive offers in all segments. Namely, Oi Livre, Oi Mais, Oi Total and Oi Mais Empresas.
Additionally, we launched the evolution of our brand to support our market repositioning. The preliminary results of these offers are encouraging. In addition to the new plans, we started to increase selectively our commercial activities in the last months, maintaining the focus on sales quality, efficiency and profitability. As a result, on the right hand side of this slide, you can see the improvement in our customer base trends with some products like broadband pay TV and postpaid presenting positive sequential growth and reversing the client trends.
Now going to slide 7, as already said, our revenues were impacted by the economic recession in the country. Additionally, our mobile revenues reflects the impact of MTR cuts and the significant decline of the handset revenues. However, it's important to remember that these two effects have no negative impact in EBITDA. On the contrary, the outsourcing of handset operations reduced costs and working capital and the MTR cuts in addition to reducing cost, leveraged our positioning to offer All-Net services to our customers in order to capture the SIM card consolidation movement and the decline of the community effect as we will see ahead in the presentation.
Now on slide 8, we present the results from the personal mobility segment. The solid annual growth of 24.4% in data revenues is supporting the personal mobility results, particularly considering a challenging macroeconomic environment, especially for the prepaid segment. The increase in 3G, 4G penetration, the improving sales mix and the launch of Oi Livre and Oi Mais are driving the increase in data traffic demand in our network. Due to this performance, the share of data revenues over customer revenues grew 10 percentage points in the last 12 months going from 38% in the first quarter of 2015 to 48% this quarter. Data revenues totaled BRL853 million.
The demand for data continued to drive postpaid ARPU offsetting part of the prepaid recharges drop caused by the macro environment. As a result, customer revenues presented a slight annual drop. In addition to our efforts to offer more data packages to our customers, we have been working on a portfolio of several apps VAS. To stimulate the use of data, which includes Oi Seguranca, Oi Mais Musica, Oi Apps Clube, Oi Revistas, and Oi Recompensa.
The app Oi Recompensa, Oi reward, for instance, is the first customer loyalty program in the mobile market specific to prepaid and control customers. Customers who joined this program accumulate points with every recharge, which they can exchange for awards or discounts on products available in the program's store.
Let's move to slide 9, where you can see that our new All-Net offers are presenting positive preliminary results helping to minimize the negative impacts of the macroeconomic scenario. Just recall by taking advantage of the MTR reduction in November of last year, we launched new offers based on two value propositions. One, All-Net calls aiming to accelerate the SIM-card consolidation process and eliminate the community effect and, two, higher data availability to our customers. As you can see in the slide, since its launch Oi Livre reached 33% of Oi's prepaid base reaching more than 12 million clients in less than 6 months. Moreover, the recharges from customers that migrated to Oi Livre per week increased almost 19%, clearly demonstrating that we are capturing value from the chip consolidation.
Our new postpaid and control offers, Oi Mais and Oi Mais Controle, reached 13% of the total postpaid and control base. In the app of Oi Mais and Oi Mais Controle, are respectively 32% and 13% higher than the other offers. These early results are very encouraging and show us that we are on the right path with our commercial strategy. Despite the reduction in the prepaid ARPUs, Oi was the only one of the four main operators to gain market share in the last 12 months.
Now going to slide 10, we show the results of our residential segment. The improvement of the residential segment is very clear on the slide. We continue to reduce the level of net disconnections each quarter in all three products. For TV and broadband, we posted net adds after four previous quarters of net disconnections. And in the fixed line, we disconnected 145,000 lines in the quarter, the lowest level of the last three years.
Additionally, we have increased the penetration of the unlimited fixed plans in our fixed base, which gives us higher ARPU and reduces churn for service whose appeal is naturally declining. We continue to improve the average speed of our broadband customer base, which reached almost 6 Mega in this quarter, up 25.2% compared to the same period of last year. The average speed of the gross adds increased 13% year-on-year, registering 7.6 Mega and 54% of our gross adds had speeds equal or higher than 10 Mega. As a result, our customers with speeds equal higher than 10 Mega grew 10.6% year-on-year, reaching approximately 35% of the total base.
Regarding our Pay TV, the mix of high-end customers in our base almost doubled reaching 24.1% of the Pay TV base. Their return to more intensive commercial activity with the new portfolio of offers combined with the profitability and retention initiatives has translated into gross acceleration and better churn rates while delivering better quality of sales and customer experience. As a result, we show consistent improvement in the profitability of our residential customer base with residential ARPU increasing 4.2% annually reaching BRL80.8 in the first quarter of 2016.
Now, moving to slide 11, after a soft launch in some states during the second half of 2015, in March, we launched nationally our convergent plan, the Oi Total. The new offer is comprised of three plans. Oi Total Solucao Completa, a full quad-play; Oi Total Residencial, a triple-play with fixed line, broadband, and TV and, finally, Oi Total Conectado, a triple-play with fixed line, broadband, and mobile. Each of these plans ranges from basic to premium packages.
Additionally, we launched some other services that add value to Oi Total. The Oi Play platform, a multi-device platform with live and no linear content, the new broadband via VDSL with speeds up to 35 Mega and the All-Net call feature in the mobile plans. Convergence is key to grow in the residential segment and Oi Total brings a completely new concept offering a convenient and complete experience to a single sale, joint installation, single BU, single CRM and single customer care in addition to providing a sharing of allowance among different services.
In summary, all services are offered on the same platform, which distinguishes our convergent offers from other offerings available in the market today. The preliminary results have shown us this offer's potential to improve profitability and also to increase our residential customer base. As you can see on the slide, in March, 19% of our Oi Total residential sales came from new customers, which demonstrates the potential of Oi Total to gain share and compete in better terms in the residential market. Convergent offers generates higher ARPU and more churn rate when compared to standalone products, while reducing operating costs and providing a better customer experience. In other words, Oi Total was designed based on three important pillars of the transformation plan: convergence, customer experience, and operational efficiencies. And, therefore, will be key to sustain the growth of the residential segment in the coming years.
Now on slide 12, our B2B segment continued to improve its revenues and its share in data and IT services through investments in digitalization and improvements to the customer experience. In the corporate segment, we continue to decrease our dependence on voice services by increasing our offerings of data services, IT and value added services such as managed services, secured solutions, cloud services, ICT, datacenter and home office among other services.
As you can see, we increased the share of non-voice revenues by 3.1 percentage points and revenues from non-traditional services, such as IT and VAS, increased 37.3% year-on-year. For the small and medium enterprises segment, as a result of all these short-term measures we took last year to restructure the segment, you can see improving metrics in this quarter such as 65.8% increase in gross adds, 16% reduction in billing complaints, and ARPU growth of 11.6% and 2.4% in fixed and mobile, respectively.
We highlight the launch of Oi Mais Empresas at the end of last year, which presented a unique and innovative proposal, a flat-fee offer, easier to understand, buy, and use. Flat-fee offers are also predictable and enable the customer to better anticipate and budget its cash flow.
The company also created a customer channel fully digital through a map that can be downloaded at no cost. The app, Oi Mais Empresas, provides exclusive service to small and medium enterprises all through the smartphone. The launch of this app is an important step towards business digitalization, which is the key part of the transformation plan we are implementing here at Oi. About 80,000 small businesses already joined the new portfolio and are now benefiting from this new service channel. Since its launch, the user satisfaction has exceeded 90%. Also, 72% of our SME customers would recommend Oi to other SMEs and 91% of all requests using this channel were concluded on time.
Now, going to slide 13, as you can see, despite inflation of almost 10% in the last 12 months, we were able to maintain cost and control. As I have already mentioned, austerity in cost is one of the main pillars of our transformation plan. And we work every day to cut inefficiencies and become more productive.
Our routine OpEx for Brazilian operations totaled BRL4.9 billion in the first quarter, dropping 1.2% year-on-year. During this same period, inflation increased to 9.4%, which indicates a real reduction of around 10% on an annual basis. Even excluding the effects of MTR cuts, leasing of assets sold, and handset costs, which are not under our control, our OpEx increased just 1.7% year-on-year, which still means a significant reduction in real terms, a testament to our commitment and discipline to control cost and expenses.
Moving on to slide 14, just as a reminder, our transformation plan is based on digitalization, convergence, data, and cost control, all aiming to provide the customer with a better experience. As part of this plan, in 2016, we remain focused on [swift] cost control and service quality improvements. We have designed and implemented more than 150 initiatives, 18 of which were already executed generating benefits to Oi.
The culture of cost control and austerity is now embedded in all levels of our organization. Regardless of our commitment to efficiency and cost control, we have never ceased to seek new ways to improve customer care, processes and overall customer experience. As a result, the number of income calls to our call centers in the first quarter of this year decreased 28% compared to the first quarter last year.
Consumer judicial claims also declined 14% in the same period. From a service quality standpoint, as perceived by our customers, we use a well-recognized metric note as net promoter score, which shows an increase of 4 percentage points year-over-year, suggesting that our effort to simplify processes and offerings are being noticed by our customers. This is the best indication that we're going in the right direction.
This customer centric approach will be supported by the digitalization of our internal processes and our relationship with our customers. This process is only possible because we have already simplified our portfolio based on convergent services.
So now we go to slide 15. The combination of new technology and new business models have resulted in rapid changes in consumer habits that are increasingly more digital in nature. In this scenario, Oi is preparing itself to act in two fronts, new digital business, rethinking our approach to redesign new products, services and processes to guarantee the journey to a new Oi digital. And digitalization of the core business, reducing or eliminating inefficiencies through digitalization of the current core processes that will finance the new digital business. In other words, digitalization will be key to our transformation. Through this technological evolution, we will be able to generate value that will sustain the journey for digital Oi.
On the slide 16, in summary, although we have shown improvement in our operations, our EBITDA dropped due to impact of the diverse macroeconomic scenario in our revenues. Nevertheless, we have increased our investments in network improvements to keep building the foundations of our long-term project, the transformation of our business to grow with sustainability. As a result, in the first quarter, consolidated EBITDA minus CapEx reached BRL523 million.
Slide 17 shows that our investments in infrastructure provide a better customer experience and speed up time to market offers, allowing the company to launch its new portfolio of innovative plans. Our main priority in the network is to keep improving the service quality levels already achieved and thereafter focus on expanding the coverage of our services.
We maintain our focus on delivering sustainable growing data traffic and quality of experience to our customers. To that end, in 2016, we are entering the next phases of our infrastructure projects, including the expansion of the 100 Giga OTN backbone, the IP core reframing, and the expansion of the IP access through the Single Edge project, in addition to initiatives of modernization and optimization of capacity to our access network, both in fixed and mobile.
These actions not only bring improving results in the network quality indicators, including ANATEL's network metrics, but also allow us to launch new offerings, such as the recent launches of VDSL, Oi Livre, Oi Mais, Oi Mais Empresas and Oi Total. It's important to note that the launch of this truly convergent offer was only possible due to all these efforts to improve our network and IT architecture. And I can say that we'll keep investing in our infrastructure to support the execution of our transformation plan.
Now let's move to slide 19 to present the status of the discussions on the regulatory framework. With respect to the TAC, our first term of adjustment of conduct, which is related to quality and universalization, is now in the last stage of the approval process at ANATEL's Board of Directors. Right now, three members have voted in favor of the agreement and we're waiting for the other two members to manifest their votes. This TAC is the leading case today and will be the first such agreement in the sector. We expect that once the first TAC is approved, the other TACs will progress more quickly.
After ANATEL's approval, the agreement will be submitted to the Federal Court of Audit, TCU, for its approval in regards to the public interest and legality of the agreement. Once TCU approves it, the company and ANATEL will have 30 days to execute the TAC agreement. This first TAC amounts to around BRL1.2 billion. Currently, there are other TACs related to consumer rights and network being analyzed by ANATEL's technical area and afterwards they will follow the same process. The total amount being discussed under the TAC processes, including the first one, totals approximately BRL5 billion and should be reverted into investments in the sector during the next four years.
Now on slide 20, regarding the review of the concession model. Recently two directors of ANATEL's Board presented their proposals regarding this subject. They both suggested a change from a concession model to an authorization model but with different approaches. A third member asked to analyze the process in April 2016 and should present his vote by the end of June.
Meanwhile on April 6, as the result of the working group formed by members of the Ministry of Communications in ANATEL, the Communications Minister published guidelines with respect to the alternatives of reviewing the model of telecom services in Brazil. ANATEL must now use its framework to update the regulatory structure in Brazil and naturally the proposed changes must be financially and operationally reasonable in order to be accepted by the current incumbents.
We understand that the plan to expand the broadband network and coverage to be published by the government shall be realistic and consistent with the market demand in Brazil.
So on slide 21, we believe that the TAC agreement and concession review will contribute to Oi's transformation by providing a symmetric and sustainable regulatory environment. Through the TAC, we will be able to conform to pre-established standards, which will improve the growth of our compliance and convert approximately BRL5 billion of potential liabilities into investments and infrastructure and/or other kinds of benefits to customers.
In parallel, as a result of the concession review, we'll have an updated contract with more reasonable targets. The possibility to move from concession to an authorization model, autonomy to manage our assets, and data oriented policies focused on broadband. In the end, everybody wins with a more balanced regulatory model. It will be aligned with the needs of our society. There will be a more sustainable environment for investments in the core business, which we believe will allow operators to provide better quality services to customers; regulatory contingencies will be settled at the same time that the operators will be in compliance with the rules.
The expectation is that both things will be concluded by the end of this year. I emphasize that the change in the regulatory framework is crucial, a more reasonable, clear and modern regulatory model will definitely unlock investments in the sector, which will help accelerate the economic and social development of Brazil.
Moving to slide 23, at the end of the first quarter 2016, after the amortization of BRL6.6 billion in the quarter, our gross debt stood at BRL49.4 billion. Our cash position amounted to BRL8.5 billion. And therefore, the company's net debt stood at BRL40.8 billion. Also at this date, the company holds two available credit lines with the CDB in the amount equivalent to BRL2 billion and with the BNB in the amount of BRL371 million, both to finance investment needs.
Slide 24 shows the net debt variation in the quarter. Net debt stood at BRL40.8 billion at the end of March 2016. As you can see, it was mainly impacted by the financial results, the annual regulatory fiscal fee and the termination of rights to usage real estate agreement signed in December 2012. Additionally, in line with our transformation plan, we increased CapEx with investments in infrastructure.
Finally, on slide 25, in summary, we continue to show progress in the execution of our business transformation despite a challenging macroeconomic environment. And I would like to take the opportunity to thank all our employees for their commitment and huge efforts to transform Oi. We believe that this movement will guarantee the sustainability of Oi in the long-term. In parallel, we have seen positive evolution on the regulatory front, which is also very important not only for the future of Oi, but also for the future of the sector.
Finally, as I have already discussed, we have been moving to address our capital structure with the goal of optimizing liquidity and improving the profile of our debt.
Now I'd like to open this up for questions. Thank you very much.
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Questions and Answers
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Operator [1]
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Ladies and gentlemen, we will now begin the Q&A section. (Operator Instructions) We have a webcast question.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [2]
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The first question I got here from the webcast is regarding the process of the debt restructuring. So on that, I'll have to make a disclaimer. I was advised by my lawyers that during this process I cannot make any further comments apart from the formal ones that we have done. So we'll try to repeat or summarize that we have announced to the market so far.
We engaged PJT as our financial advisor to address our capital structure and they have been working on alternatives for potential debt restructuring, as you know. Regarding Moelis, I have mentioned during the call, we entered [into a] non-disclosure agreement and they are acting as advisor for the committee of bondholders. Moelis is the only advisor we have recognized so far in that regards. We are engaged with them in productive discussions regarding the debt restructuring so far. We intend to complete the debt restructuring as quickly as we can. And we believe the negotiations with this single ad hoc group will best facilitate the restructuring in a timely manner. We'll keep the market informed as soon as we have any news on that regard. So regarding the debt restructuring, that's what we can share with you so far.
Okay. There is an additional question here from the webcast I would like to address. The question is, despite all the efforts to control costs, you still present every quarter heavy cash burn. How do you expect to survive in 2016 considering that you still have BRL8.3 billion in debt amortization for this year?
Well, regarding this quarter, our cash burn was due mainly to debt interest, fiscal fee, and the CapEx increase that we've done. The results are a non-core issue here that we can explore further on. But the bulk of the cash burn comes from the debt interest and the debt service. And as I have mentioned, we worked with PJT and now with Moelis on discussions about a debt restructuring. So we believe we will have to address that in that process of debt restructuring.
If we compare as well, I would say the cash burn of first quarter last year and this quarter, I would say that there are two events there that have impacted us. First quarter 2015, the cash burn was around BRL2 billion, this quarter BRL2.7 billion. So this difference comes mainly from the increase in CapEx, as I mentioned. We have increased our CapEx in comparison [around BRL220 million]. And also the termination of a real-estate rights of usage agreement that was signed back in December 2012 and in that sense we got back the real-estate and we paid out the amount of money that we received back in December of 2012. This amounted BRL365 million, roughly. So with those two events, we explained the difference in terms of cash burn from the first quarter 2015 to the first quarter this year and more than that the real-estate rights of usage termination, it's a one-shot event. So we do not expect that to happen in the upcoming quarters. But again, to drive the cash burn, we have to face the process of debt restructuring, and that's what we're doing.
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Operator [3]
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Susana Salaru, Itau BBA.
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Susana Salaru, Itau BBA - Analyst [4]
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I'd like, Bayard, if you could comment on the competitive dynamics, we saw the launch of flat on and off net by you guys and by other company. And on other side of the spectrum, we saw the competitor launching aggressive data plans. So I was just wondering how you're seeing evolving there with the competitive dynamics. That would be our first question. And then, also related to this question, if you could comment also in the connection cost behavior this quarter. It was mentioned in the release that there was a decline in the off-net traffic. So we're just curious to learn how that could happen if you launched the flat off and on-net tariff that could or would stimulate the subscribers to do more off-net calls. So how do we reconcile the launch of these new plans with the behavior of the off-net traffic? Thank you.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [5]
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Thank you for the questions. First, so far I think we've been very active in launching new offers not only in the mobile business but also in the residential segment as well. And so far, we are happy with the results. In terms of the Oi Livre, the charges on that plan is increasing and also the customer base of that plan is increasing. We have already 33% of the total base of the prepaid in the Oi Livre plan. We are also seeing some increase in terms of the recharges, as I mentioned. It's around 19% increase of the recharges in that plan.
So again, we think the launch was successful so far and we are happy with the early results of this. Of course, it's still in the very beginning of the process; so we'll see how it goes for the upcoming quarters. In terms of the postpaid, we've been able to post net adds in the postpaid after a long period of time. So again, we believe the offer is attractive. We're seeing an increase also in the base of the Controle plan as well. ARPU is going up around 30% and the base is increasing, so 13% of the postpaid base is already in that new launch, namely Oi Mais. So, we're happy with that.
If you take into consideration the mobile market share of this sector over the last 12 months, out of the four big players, Oi was the only one to gain market share. I think that shows that as the fourth player, all-net offer was an important movement for us because we are capturing that growth from the other players.
When we go to the residential segment, again, we launched one month ago, almost two months ago, nationally, the Oi Total. Early results are also encouraging, we are posting net adds, positive net adds on broadband and TV and Oi has been reducing the net disconnections in the fixed line for the lowest level in the last years as well. So again, I think as we told the market, by the end of last year, this year we are being more active in the commercial side. And things are starting to move to where we believe we should take the company.
So, so far I think the results are encouraging. Again, it's the beginning of the process. But I think we are doing the right things in terms of launching new offers with data packages, aggressive data packages, all-net offers and convergence packages as well. In regards to the interconnection, what I can tell you is the following. We're seeing, as you can see this quarter, a significant reduction on the revenues in terms of interconnection. But also on the other side in the cost and expenses, you see the same movement offsetting that result in revenues. We believe this trend will continue, so the result of this is, I mean, it's almost neutral in terms of EBITDA and that's how we see moving forward.
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Operator [6]
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We have a question via webcast.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [7]
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The question is, although you have been able to maintain cost under control, EBITDA has been decreasing since 2015. What to expect from EBITDA level going forward? And specifically to the B2B segment, what explains the 4.1% sequential increase in revenues?
Well, first of all, we decided not to give guidance this year so there is no guidance for EBITDA -- 2016 EBITDA. I think that, as our peers, our results are impacted by the recession in Brazil. The macroeconomic condition of the country is deteriorating and we're seeing this in all of the players. And we are not an exception here. So EBITDA is impacted by that situation as the others as well. I think it's, again, important to highlight that we are improving our operations; in our view, we are transforming our business. In that sense, we've been able to maintain cost under control despite almost 10% inflation in 2015.
We have also intensified our commercial activities as I explained on Susana's question here. Results so far are very encouraging, as I mentioned, in the mobile business, in the convergent packages and even in the SMEs, where we're still getting some early signs from the new plans in the Oi Mais Empresas which is a flat fee plan attached to a new app where the clients can have always interaction with the company through this app. So, since I have already mentioned the early results of the mobile plans and Oi Total, which is a convergent plan, I'll give you some data on the Oi Mais Empresas as well.
The apple of the gross adds is going up. There is an increase of around 66% including gross as well in this offer; 16% reduction in billing complaints, which is a significant result so far. We have already 80,000 SMEs that joined this new portfolio. The customer satisfaction on this app is 93%. So this shows that, again, we are doing the right things in terms of the new commercial offers and in the SMEs, we're doing the same as in the retail.
Now going specifically into the B2B question, yes, we had a positive quarter in the B2B mainly due to the following points here. One, we have some one-off service contracts in the corporate business. As you know, the corporate businesses happen from time to time, specific services that are just one-shot, but it happened this quarter and it did impact positively the results of the B2B.
Also, I think this is a result because of the focus we're putting on the wholesale, on the non-regulatory services. As I have mentioned in the past, the wholesale division here was focused only on providing the regulatory services to our competitors. And now we have a focus on approaching this segment with no regulator services as well and the result is positively impacted by that. And finally, we had settlements in all disputes with our competitors that impacted us positively here, especially in some rural areas swapped by fiber. So those were the main points here in the B2B that helped us in posting positive results in the revenue.
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Operator [8]
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Jonathan Graham, Royal Bank.
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Jonathan Graham, Royal Bank - Analyst [9]
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Hi, Bayard. I?ve got two. One was, did I hear correctly that you're hoping the concession negotiations will be resolved by the end of 2016? And then my other question was, I think when you last reported, you were commenting that line loss had stabilized at about 50,000, 60,000. Could you sort of give us an update on how business is trading in April and May? Have we seen another positive improvement in trading?
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Bayard De Paoli Gontijo, Oi S.A. - CEO [10]
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Good morning, Jonathan. Thank you for the questions. Yes, I think you hear well, we expect to have this concession framework discussion ended by 2016. We believe there is room for us to evolve on that discussion.
I think it's pretty reasonable what we're discussing here. I mean, what we want here is an update of the model where we can better service the needs of the society and to take out some of the asymmetries that we face when we talk about competition in Brazil. So our focus and our efforts will be to continue to evolve on that and we hope -- we expect this to resolve until the end of 2016.
If I'm correct, the second question was about net disconnections in the fixed business?
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Jonathan Graham, Royal Bank - Analyst [11]
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Yes.
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Bayard De Paoli Gontinjo, [12]
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And in that -- yes, net disconnections in the fixed business was around 150,000 this quarter, which means an average of 50,000 per month, which is the best trend in the last, if I'm not wrong, three years. So again, I think the Oi Total and the more aggressive approach in the commercial activity, it's already showing some results in terms of decelerating the net losses in the fixed and posting positive figures in net additions for the broadband and TV.
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Operator [13]
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Mauricio Fernandes, Merrill Lynch.
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Mauricio Fernandes, Merrill Lynch - Analyst [14]
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Thank you. Good morning. I have two questions, please. One, surprisingly, in the inflation index in April, we saw the communications basket, they are showing a 12% increase year-on-year. This sector has been showing deflation, not inflation. So I'm wondering if there is any change in the competitive dynamics recently that would have allowed for such an apparent price increase or not. I mean, it's just something that might have happened in April and it's the same ongoing efforts in trying to pass through inflation to prices.
And the second question is related to CapEx, if you could give us a sense of what the CapEx plans are for -- if only a range, for 2016? Thank you.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [15]
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Thank you for the questions. I mean, the inflation question, I think it's what happens in the sector normally that operators, they try to pass through inflation through prices. But at the end what drives pricing in Brazil is the competition. We have a very, I would say, competitive market here. We have at least four players in every service. And although we've tried to have a conservative approach and to pass through the inflation, normally what dictates how this is going to happen during the year is the competition. So I think there might be some impact in the IPCA about this. But, I mean, we are in a competitive market and it will drive prices going forward.
The second question was about CapEx and what I think you should expect for 2016. As I mentioned, we are not giving guidance. We're not going to give guidance for CapEx. But I think we showed in this quarter that we're doing the right things for the business. And the increase of around 20% in the CapEx this quarter is mainly to address the needs we have in terms of improving the quality of the network and also starting to improve coverage. Of course, we have our limits here -- capital limits, of course. We're going to respect that. But we will do what's right for the business and the CapEx of 2016 will be the CapEx needed to continue to provide services -- quality service to our clients and to continue with the approach we've been having in terms of our sales.
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Operator [16]
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Maria Tereza Azevedo, UBS Bank.
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Maria Tereza Azevedo, UBS Bank - Analyst [17]
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Hi, Bayard. Thanks for taking the question. I would just like to have a little bit more detail on the CapEx plan for the future. And what initiatives do you think there is room for CapEx reduction, for example, rent sharing or order infrastructure sharing alternatives? And what do you think is the sustainable level for the operations in terms of percentage of sales going forward? Any color on that front would be very helpful. Thank you very much. I know you're not going to give the guidance, but just more visibility.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [18]
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No, no, we'll give you a generic explanation of our plans this year. We're not going to give you any figure or percentage in terms of revenues because, as I mentioned, we're not giving guidance. I'd like to reinforce that our plan this year is to invest what is needed in terms of maintaining this approach -- commercial approach that we have defined late last year. So that's our goal and that's what we're going to fulfill during this year. But Pedro Falcao, our CTIO, is here with me and he'll give you more color on the CapEx priorities for this year.
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Pedro Falcao, Oi S.A. - CTO [19]
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So the CapEx priority is to continue the development of the new backbone, the optical backbone and the IP. Also to improve what is represented in slide 10, where we clearly see that the average fees of our customers is increasing and we are decreasing like in our fixed broadband 30% in terms of congestion.
So, this is to continue this transformation project. We are also continuing our fiber swap program that is aiming to improve the network resilience. And in terms of IT architecture, we are progressing with the transformation of our IT, reducing the number of mainframe-based IT specs. And we are also transforming our IT towards digital to expose our APIs to our clients. So this is mainly what we are doing in the access and in the core.
And in 2016, by the end of this quarter, we will finalize the modernization of the core of the mobile. As we speak, we are finalizing the new data base UDR of the mobile, so we have completed the transformation of the core of the mobile voice and data of our network. Basically, we are continuing our transformation project that is reflected in our strategic plan with no changes whatsoever.
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Operator [20]
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I would like to turn the floor over to Mr. Bayard for his final remarks.
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Bayard De Paoli Gontijo, Oi S.A. - CEO [21]
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Thank you very much for joining us on this conference call. I'd like to take the opportunity again to thank my teams here that has done great work over the last months. And hope to see you next quarter. Thank you very much. Bye-bye.
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Operator [22]
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This concludes Oi SA?s conference call. You may now disconnect and have a good day.
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